Market Snapshot
| Dow | 40003.59 | +134.21 | (0.34%) | | Nasdaq | 16685.97 | -12.35 | (-0.07%) | | SP 500 | 5303.27 | +6.17 | (0.12%) | | 10-yr Note | -4/32 | 4.42 |
|
| | NYSE | Adv 1461 | Dec 1271 | Vol 925 mln | | Nasdaq | Adv 2028 | Dec 2175 | Vol 9.6 bln |
Industry Watch
| Strong: Energy, Materials, Financials, Communication Services, Consumer Discretionary, Health Care |
| | Weak: Information Technology, Consumer Staples, Real Estate |
Moving the Market
-- Lacking conviction after record highs this week; consolidation efforts acting as a drag on the market while carryover momentum provides some offsetting support
-- Mixed responses to earnings news since yesterday's close
-- Mixed activity in mega cap stocks contributing to the muted index-level feel
|
Closing Summary
17-May-24 16:35 ET
Dow +134.21 at 40003.59, Nasdaq -12.35 at 16685.97, S&P +6.17 at 5303.27
[BRIEFING.COM] The Dow Jones Industrial Average closed above 40,000 for the first time, gaining 0.3% today. The S&P 500 (+0.1%) also closed with a gain and the Nasdaq Composite (-0.1%) settled slightly lower than yesterday.
Today's price action was limited, leading the major indices to trade in relatively narrow trading ranges through the session. Advancing issues led declining issues at the NYSE and declining issues led advancing issues at the Nasdaq.
The performance of the S&P 500 sectors also reflected mixed action. Aside from energy, which closed 1.4% higher, none of the sectors moved more than 0.9% in either direction.
The consumer discretionary sector was another outperformer thanks to a big move higher in shares of Tesla (TSLA 177.46, +2.62, +1.5%) on news that it plans to cut approx. 600 positions in California, according to Forbes. Amazon.com (AMZN 184.70, +1.07, +0.6%) also closed higher.
Treasuries settled with losses today, which kept buying somewhat in check in the stock market. The 10-yr note yield settled four basis points higher at 4.42%. The 2-ry note yield rose three basis points today to 4.82%.
Still, Treasuries settled with solid gains on the week, which acted as support for buying activity in stocks through the week. The 10-yr note yield was eight basis points higher on the week and the 2-yr note yield was five basis points lower.
- S&P 500:+11.2% YTD
- Nasdaq Composite: +11.2% YTD
- S&P Midcap 400: +8.4% YTD
- Dow Jones Industrial Average: +6.1% YTD
- Russell 2000: +3.4% YTD
Reviewing today's economic data:
- April Leading Economic Index -0.6% (Briefing.com consensus -0.3%; prior -0.3%)
Looking ahead, there is no US economic data of note on Monday.
Stocks climb ahead of close
17-May-24 15:35 ET
Dow +115.75 at 39985.13, Nasdaq -13.02 at 16685.30, S&P +5.31 at 5302.41
[BRIEFING.COM] Stocks climbed off session lows in recent action.
The market-cap weighted S&P 500 is trading up 0.1% and the equal-weighted S&P 500 shows a 0.1% gain also.
The 10-yr note yield settled four basis points higher today, and eight lower on the week, at 4.42%. The 2-ry note yield rose three basis points today, and fell five this week, to 4.82%.
Looking ahead, there is no US economic data of note on Monday.
Markets slip in afternoon trading; Paramount, GE Vernova down among S&P 500 ranks
17-May-24 14:30 ET
Dow +31.06 at 39900.44, Nasdaq -64.59 at 16633.73, S&P -7.92 at 5289.18
[BRIEFING.COM] A little drop lower in the major averages has the S&P 500 (-0.15%) at lows of the day, falling to levels last seen midday on Wednesday.
Elsewhere, S&P 500 constituents Paramount Global (PARA 12.10, -0.54, -4.27%), Lam Research (LRCX 908.73, -34.17, -3.62%), and GE Vernova (GEV 161.99, -4.41, -2.65%) dot the bottom of the average. PARA and LRCX dip despite a dearth of corporate news, while GEV announced this morning that Martina Hund-Mejean would join the Board.
Meanwhile, Arizona-based mining firm Freeport-McMoRan (FCX 53.91, +1.87, +3.59%) is today's top performer as commodity prices, specifically copper, end the week on a high note.
Gold adds to weekly, YTD gains on Friday
17-May-24 14:00 ET
Dow +66.87 at 39936.25, Nasdaq -19.33 at 16678.99, S&P +0.57 at 5297.67
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.12%) is now the sole laggard with about two hours to go on Friday, the S&P 500 trading places between modest gains and losses as we approach the last bit of trading.
Gold futures settled $31.90 higher (+1.3%) to $2,340.30/oz, about +3.3% higher this week and +16.7% YTD, aided in part by increased rate cut bets.
Meanwhile, the U.S. Dollar Index is about flat at $104.47.
DJIA remains in the green on Friday; Walmart, Caterpillar aid advance
17-May-24 13:30 ET
Dow +64.60 at 39933.98, Nasdaq -17.42 at 16680.90, S&P -0.22 at 5296.88
[BRIEFING.COM] The Dow Jones Industrial Average (+0.16%) is now the sole major average in the green, the S&P 500 drifting into the red over the prior half hour, the DJIA up now about 65 points.
A look inside the DJIA shows that Walmart (WMT 64.87, +0.86, +1.34%), Caterpillar (CAT 354.60, +3.88, +1.11%), and Goldman Sachs (GS 467.98, +3.46, +0.74%) are among today's top gain getters.
Meanwhile, Intel (INTC 31.79, -0.24, -0.75%) is underperforming.
The DJIA is on pace to gain about +1.07% this week.
Elsewhere, at the top of the hour, Baker Hughes (BKR 33.33, +0.31, +0.94%) announced a weekly U.S. rotary rig count of 604, +1 w/w and -116 yr/yr.
Doximity has the right prescription for posting some big gains as company beats Q4 estimates (DOCS)
Doximity (DOCS), a provider of a digital platform for healthcare professionals, is rocketing higher after reporting a top and bottom line beat for Q4, driven by strong demand from its largest and most sophisticated customers.
- Renewal rates also remained strong, as indicated by DOCS' net revenue retention rate of 114%, but the company also stated that it's seeing less expansion in new business from its health system customers. Therefore, DOCS' FY25 revenue guidance of $506-$518 mln came up a bit light, although investors are focusing on the many positives that emerged from this earnings report -- including a newly announced $500 mln share repurchase program.
- That repurchase program is a product of DOCS' robust cash flow generation and profitability. More specifically, free cash flow grew by 37% yr/yr to $62 mln in Q4, and in FY24, adjusted EBITDA increased 25% to $230 mln. DOCS' margins also stood out with Q4 adjusted EBITDA margin coming in at 48%, which is 10% above the high end of its guidance.
- At the core of the company's impressive results is the ongoing strength in its large customer base. For DOCS' top twenty customers, the net revenue retention rate was even higher than the overall rate at 122%. Furthermore, the number of customers contributing $500,000 or more in subscription-based revenue on a trailing 12-month basis increased by 23% yr/yr to 98.
- DOCS is also making a pitch to be viewed as another AI play. Along with the aforementioned share repurchases, the company is ramping up its investments in R&D and AI. During the earnings call, CEO Jeffrey Tangney highlighted DOCS' new HIPAA compliant medical writing assistant and announced a new platform integration with Perplexity. Perplexity is an AI answer engine for physicians that can provide the latest guideline changes with a quick link to the Medical Society website where the full guideline is published.
- These new AI capabilities should help build upon the momentum that's already in place for DOCS' platform. To that end, in FY24, the company added over 400,000 registered health care professionals to the platform, which was the second largest increase in its history. The only year that saw more additions was 2021, when COVID-19 fueled a surge in new users.
The main takeaway is that while DOCS isn't completely immune to the macroeconomic headwinds, its business is healthy and it's well-positioned to capitalize on the healthcare sector's ongoing digital transformation as AI becomes a larger factor.
Cracker Barrel slashes its dividend, lowers outlook as headwinds intensify from last quarter (CBRL)
Cracker Barrel (CBRL -12%) stoops to five-year lows today, trading below pandemic lows after the restaurant chain, typically situated off interstate exits, painted a gloomy outlook and slashed its quarterly dividend by over 80%, going from a 9.1% annual yield to 2.1%. CBRL has struggled to attract a younger demographic into its locations, which tend to appeal to an older customer base. Reinvigorating its brand has been no small feat, and an unfavorable economic backdrop has only made turnaround efforts more challenging. However, after several quarters of persistent headwinds, CBRL announced more aggressive steps, focusing on relevancy, customer experience, and profitability.
- To Briefing.com's surprise late last year, CBRL decided to maintain its generous dividend, which continued to swell as its share price sank. In fact, during its Q2 (Jan) earnings call in February, CEO Julie Masino mentioned how the company was primarily focused on its strategic imperatives surrounding its brands but stated that returning capital to shareholders was still a priority. Given this context, investors were caught slightly off-guard by CBRL's move to lower its dividend, especially given the size of the cut.
- Meanwhile, traffic weakened, prompting CBRL to expect Q3 (Apr) and Q4 (Jul) results to miss previous expectations. Last quarter, traffic improved notably, up 300 bps sequentially. Even though management warned that industry traffic would remain pressured throughout FY24 (Jul), it anticipated continuous traffic improvements. Against this backdrop, CBRL's guidance update was striking, as the upbeat trends it witnessed last quarter reversed rapidly.
- CBRL's FY27 guidance was not much of a silver lining. The company projected sales of around $3.8-3.9 bln, translating to approximately 8.5% growth, or a ~3.0% CAGR, from its estimated revenue in FY24. While CBRL's expected annualized growth rate is similar to what it recorded in FY23 and is estimated for FY24, it relies mostly on demand picking up significantly in FY27. Management outlined that growth would stagnate in FY25, improve toward the back half of FY26, and accelerate in FY27.
CBRL has plenty on its plate to return to relevancy, particularly among younger customers. Last quarter, the company noticed decent growth in the 25-44 cohort, providing it encouraging momentum. Unfortunately, this trend appears to have already dissipated. Part of CBRL's turnaround game plan includes menu optimization. The company already offers plenty of options at competing prices, which have yet to do much to move the needle. However, this may be a marketing issue, which CBRL is looking to address by stepping up its marketing spending to around 3% of total sales from 2% previously.
Bottom line, CBRL might be drifting into irrelevancy and is quickly acting to avoid this fate. Its updated strategy could be the trick to increasing its appeal to a broader audience. Given the inflationary environment, individuals are likely hunting for value-centric dining options, an asset of CBRL's given its numerous meals for under $12.00. Still, CBRL has much to prove before it can turn around its ailing stock price.
Reddit soars as up-and-coming data licensing business lands major partnership with OpenAI (RDDT)
Advertising currently accounts for roughly 98% of Reddit's (RDDT) revenue, but the next stage in the social media company's growth curve likely rests in the value of the immense amount of data it holds on its platform. This emerging growth catalyst was on display last night when RDDT and Microsoft-backed (MSFT) OpenAI announced a new partnership in which RDDT's content will be embedded into ChatGPT while new AI-powered features will be made available to RDDT users and moderators. OpenAI also said that it will place ads on RDDT's site.
- Financial details for the arrangement were not provided, but RDDT's pre-existing data licensing deal with Alphabet (GOOG) offers a gauge. Specifically, GOOG is paying RDDT $60 mln for access to the company's data in order to help train GOOG's large language models which power its generative AI technologies, including the Gemini chat bot.
- When RDDT reported strong Q1 results on May 7 -- its first earnings report since its March 22 IPO -- CEO Steve Huffman highlighted the data licensing opportunity, stating that as more content on the internet is written by machines, the premium put on content written by people will only increase.
- The market is still nascent and is still evolving. In Q1, RDDT's "other revenue", which mainly includes data licensing, surged by 450% yr/yr to $20 mln. In comparison, ad revenue grew 39% yr/yr to $223 mln as click volume doubled and as RDDT improved click-through-rates by more than 40% yr/yr. It was a stronger-than-expected showing for the ad business, helping to push RDDT's overall revenue growth rate higher to 48%, its fastest level since 1Q22.
- However, RDDT did warn that it has low visibility into 2H24 and that inflation, geopolitical uncertainties, and more challenging yr/yr comps in Q3/Q4 could weigh on the advertising business going forward.
- Therefore, in order to justify RDDT's $10+ bln market cap and 1-year forward P/S of 8x, the company will need to secure more data licensing arrangements. The company also isn't profitable on a GAAP net income basis yet, although it did swing into the black when using adjusted EBITDA as a measuring stick.
- In Q1, RDDT generated adjusted EBITDA of $10.0 mln compared to ($50.2) mln in the year-earlier period, and it forecasted Q2 adjusted EBITDA of $0-$15 mln.
Overall, the new partnership with OpenAI is a significant step in the buildout of RDDT's data licensing business, which is steadily gaining traction and is set to become a much more meaningful topline contributor in the quarters to come.
Applied Materials trades flat, retreating from all-time highs following solid AprQ results (AMAT)
With shares reaching all-time highs yesterday, running +40% to start the year, Applied Materials (AMAT) was up against a high bar ahead of its Q2 (Apr) report. Therefore, even though the semiconductor equipment supplier delivered decent-sized top and bottom-line upside in the quarter while projecting Q3 (Jul) numbers mostly ahead of consensus, shares of AMAT remain flat today.
- Much of what management suggested last quarter came to fruition. Demand across ICAPS (IoT, Communication, Automotive, Power, and Sensor) continued to grow, filling in some shortfalls from lower China DRAM shipments (trade rules restricted AMAT from an estimated 10% of the China market in Q2). Meanwhile, factory utilization across all device types improved, driven largely by an ongoing data center AI megatrend.
- Also worth mentioning is the significant capital spending plans from cloud service providers, which are favorable developments for AMAT's customers.
- With the demand backdrop stable and steadily improving, AMAT was positioned to deliver Q2 numbers toward the higher end of its previous guidance ranges, registering adjusted EPS of $2.09, compared to its $1.79-2.15 forecast, and revs of $6.65 bln, a 0.2% bump yr/yr and well above the midpoint of its $6.10-6.90 bln outlook.
- AMAT's Q3 guidance further illuminated a stable demand environment. The company projected earnings and revs of $1.83-2.19 and $6.25-7.05 bln, respectively, the midpoints of which exceeded analyst expectations.
- AMAT also reiterated its confidence in a massive uptick in demand come 2025, expecting some of its businesses to grow as high as 100% yr/yr, including its Gate-All-Around (GAA) transistor architecture technology and its advanced packaging business. AI is largely fueling AMAT's continuously energetic, longer-term outlook. CEO Gary Dickerson believes AI will be the biggest technology inflection ever, and at the heart of it requires advanced chips, which all lean on AMAT's technology.
As expected, 2024 has thus far been a year of muted growth. As such, investors are setting their sights on 2025, seeking confirmation that macroeconomic conditions are sufficient to keep AMAT on track to capitalize on a considerable build-out next year, a trend touched on repeatedly by peers Lam Research (LRCX) and KLA Corp (KLAC). AMAT has not changed its upbeat view surrounding 2025, remaining excited over the opportunities secular trends in AI and ICAPS present.
As long as the demand for AI stays robust, prompting hyperscalers to continue pouring resources into building their infrastructure, and underlying ICAPS spending continues improving, AMAT should continue to enjoy the wind at its back. However, with shares at all-time highs, any red flags from AMAT or its peer group, including leaders in the AI space, can ignite a quick pullback. This dynamic unfolded in April after ASML (ASML) and Taiwan Semi (TSM) flashed a few warning signs. Therefore, while we like AMAT for the long run, current price levels can lead to sharp drops on any worrying news.
Under Armour's Founder does not wait long to enact sweeping changes; FY25 revs to take a hit (UAA)
Under Armour (UAA) founder Kevin Plank took little time to implement sweeping changes as newly minted CEO, replacing Stephanie Linnartz, who sat in the corner office for just 13 months, on April 1. Mr. Plank announced a broad restructuring plan, reinvigorating the company's brand strength over the next 18 months by zeroing in on brand-building fundamentals. The turnaround plan is the second UAA has undergone within the past year following Ms. Linnartz's plan.
A company constantly undergoing an overhaul tends to generate impatience from investors, evidenced by shares of UAA staying within a tight range of $6.00-10.00 over the past year, around 60% below levels from 2021. The next 18 months may not be much better either, as Kevin Plank conceded that his strategy will result in a low double-digit percentage drop in revs yr/yr in FY25 (Mar), including a 15-17% decline in North America.
- Given the magnitude of UAA's ambitious turnaround efforts, the company's Q4 (Mar) report took a backseat today. UAA delivered adjusted EPS of $0.11, modestly better than analysts anticipated, on $1.33 bln in revs, or a 4.7% decline yr/yr, consistent with consensus.
- What are the pillars of Kevin Plank's turnaround plan? UAA will eliminate products that are not up to par, reducing its SKUs by around 25% over the next year and a half. UAA is also looking to reduce the time it takes to get a product to market, targeting a 12-month go-to-market capability.
- UAA will also re-emphasize its men's apparel business, particularly in North America. Mr. Plank remarked that too much promotional activity and a lack of focus in the apparel business materially hurt the perception of the Under Armour brand. As such, men's apparel will be its top priority, making it crucial to begin seeing improvements over the next few quarters. In Q4, apparel sales edged 1.3% lower yr/yr, which did outpace footwear and accessories, dropping by 10.6% and 6.6%, respectively. However, apparel fell yr/yr for back-to-back quarters, the first time since 3Q23 (Sep).
- Finally, UAA will enhance its direct-to-consumer (DTC) line of exclusive products for its stores and e-commerce. Wholesale will remain vital to UAA's success, comprising roughly 60% of its total revenue. However, Mr. Plank wants to reignite demand around DTC, leveraging its physical and digital stores to drive success.
Like many turnaround strategies, UAA is looking to reduce the number of moving parts in its operations, from the number of consultants to the number of suppliers. Investors initially balked at the news that the founder, Kevin Plank, would replace Stephanie Linnartz, likely frustrated by how little time the Board gave to the former CEO to enact her turnaround strategy.
However, following an initial sell-the-news reaction to Mr. Plank's restructuring plan today, shares are moving toward the green, underscoring some mounting enthusiasm over the potential for UAA to finally break free from its constant woes. Announcing a $500 mln repurchase plan is also helping ease the pain. Nevertheless, it may be better to wait until UAA's initiatives result in improved quarterly numbers.
|
